"either an idiot... or possessed of a dangerous agenda and very cunning"

Wednesday, 14 January 2009

The state as owner

Following on from my previous post, and drawing further on Hansard you get an idea from Paul Myners’ responses to questions on the Banking Bill of how the Government is thinking about its role as a major shareholder in the banks:

In the case of Royal Bank of Scotland, the Government are acting not as a sleeping shareholder but as a responsible shareholder. We are engaged with the board of that bank in strengthening its membership in the interests of all shareholders. It would be inappropriate for the Government to involve themselves in commercial, day-to-day banking decisions. The Government do not have the appropriate skills to do that. We find the right skills in the private sector, and we act in the interests of all shareholders. As a responsible lead shareholder, the Government ensure that the board is appropriately resourced, that the company’s approach to risk is professional and consistent with protecting and enhancing the value for shareholders and that the company’s control regimes and its approach to remuneration comply with the best standards. It would abusive of public shareholders for us to act as if we own 100 per cent of the company when we own only 56 per cent and we did not intend or wish to own that much if things had worked out differently. Ideally, we would not have wanted to have been put in this position at all.

Who decides the nationalised and part-nationalised banks’ strategies?:

In the case where we are but one shareholder—albeit the largest shareholder—it will be put to all shareholders. Royal Bank of Scotland’s strategy will not be solely approved by the Government with complete disregard for other shareholders, with no engagement between the bank and other shareholders as would customarily be the case where the UK Government was not a large shareholder.In a case such as Northern Rock and Bradford & Bingley, where the bank is currently, temporarily, 100 per cent in public ownership, the process is rather more direct, but there is a very clear difference between those who are charged with developing and executing strategy—the board and the management—and those who are charged with approving strategy, the shareholders.

And also the need to improve the governance of financial institutions:

There is a pressing need to strengthen the board of directors of a number of UK financial institutions. In cases where the Government have invested, UKFI, under the chairmanship of Sir Philip Hampton, the chairman of Sainsbury, and the leadership of its chief executive, John Kingman, is actively engaged to work with boards of directors to strengthen them through new appointments. I would not want those new appointments to be described or understood as being government appointments. I believe that the Liberal Democrat party and the Official Opposition support the concept of a unitary board in which the board is responsible to all shareholders. The concept of having directors who sit around the board table to speak for one shareholder to the disregard of others and who potentially take instruction from outside the boardroom or impart information from the boardroom back to one shareholder is alien to our core beliefs about corporate governance and correct practice.

However, stronger boards we need. In the case of the Royal Bank of Scotland in particular, several directors, including the chairman, have indicated their intention to leave the board. Therefore, those boards, their major shareholders and UKFI need to work together to make first-class appointments. Finally, I add that those appointments should not necessarily be wholly and exclusively people with banking experience because, as the noble Lord, Lord Newby, said, and as was covered in an earlier debate in this House on the subject, we need to ensure that other issues such as technology and customer focus are appropriately represented around the board table.

About Me

I work at the International Transport Workers Federation on capital stewardship. I'm interested in developing a stronger voice for labour in the capital markets, responsible investment and corporate governance.
This blog represents my personal views only.